Moore v. Hannon Food Service, Inc.

• Decision Date: 20 January 2003
• Docket Number: No. 01-60844.,01-60844.
• Parties: Karen MOORE, Derrick L. Nichols, Shawyna Frank, George James, Eugene Page, Mary Ann Frye, and Lisa A. Green, Plaintiffs-Appellees-Cross-Appellants, v. HANNON FOOD SERVICE, INC., et al., Defendants, Hannon Food Service Inc.; Hannon's Food Service, Inc.; Hannon's Food Service of Jackson, Inc.; and Hannon's Food Service of Natchez, Inc., Defendants-Appellants-Cross-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

317 F.3d 489

Karen MOORE, Derrick L. Nichols, Shawyna Frank, George James, Eugene Page, Mary Ann Frye, and Lisa A. Green, Plaintiffs-Appellees-Cross-Appellants, v. HANNON FOOD SERVICE, INC., et al., Defendants, Hannon Food Service Inc.; Hannon's Food Service, Inc.; Hannon's Food Service of Jackson, Inc.; and Hannon's Food Service of Natchez, Inc., Defendants-Appellants-Cross-Appellees.

No. 01-60844.

United States Court of Appeals, Fifth Circuit.

January 20, 2003.

T. Jackson Lyons (argued), T. Jackson Lyons & Associates, Jackson, MS, for Plaintiffs-Appellees-Cross-Appellants.

Wendy Moore Shelton (argued), Stephen W. Rimmer, Watkins, Ludlam, Winter & Stennis, Jackson, MS, for Defendants-Appellants-Cross-Appellees.

Appeals from the United States District Court for the Southern District of Mississippi.

Before JONES, SMITH and SILER,^* Circuit Judges.

JERRY E. SMITH, Circuit Judge:

Hannon Food Service, Inc.; Hannon's Food Service, Inc.; Hannon's Food Service of Jackson, Inc.; and Hannon's Food Service of Natchez, Inc. (collectively "Hannon") appeal a judgment as a matter of law ("j.m.l.") in this action brought pursuant to the Fair Labor Standards Act ("FLSA") awarding overtime benefits to a group of restaurant managers. Concluding that Hannon properly availed itself of the window of correction provided for at 29 C.F.R. § 541.118(a)(6), we reverse and render judgment in favor of defendants.

I.

A.

Hannon¹ owns various KFC restaurants throughout Mississippi. Plaintiffs were employed as restaurant managers at a salary of $300 per week plus a monthly bonus of 2% of the gross sales of the restaurant they managed. Hannon had a policy of deducting recurrent cash register shortages from the supervising manager's monthly bonus. In November 1997, Hannon began deducting these shortages from the managers' weekly salaries rather than their monthly bonuses, ostensibly to increase the managers' responsiveness to the problem. This new practice resulted in a total of seventeen deductions across four of the plaintiffs; the other plaintiffs incurred no deductions. Salaries were not otherwise decreased for any reason.

Hannon made its legal counsel aware of the policy in February 1998, and counsel prepared a memorandum advising Hannon to discontinue the practice. Hannon promptly reverted to the previous practice of taking the deductions from the bonuses.

B.

Plaintiffs sued Hannon on May 28, 1998,² alleging violations of the FLSA, as amended, 29 U.S.C. § 216(b). On September 13, 2000, Hannon tendered plaintiffs the total amount of all improper deductions plus 8% interest from the dates of the deductions to September 18, 2000, the date then set for trial. Hannon later moved for summary judgment and filed a stipulation of facts to which all parties agreed. Plaintiffs filed a cross-motion for summary judgment. The district court granted j.m.l. for plaintiffs, finding that plaintiffs were not exempt bona fide executive employees for a four-month period, because they were "subject to" improper deductions within the meaning of 29 C.F.R. § 541.118(a); the court rejected Hannon's argument that § 541.118(a)(6) allowed it to correct its error and maintain the exempt status of the employees. The court ordered Hannon to pay each plaintiff four months of overtime pay.

II.

Hannon maintains that the district court should have applied the window of correction specified in 29 C.F.R. § 541.118(a)(6), which would have allowed Hannon to avoid liability because they reimbursed the improper deductions. Hannon contends that the plain language of the regulation, as interpreted by Auer v. Robbins, 519 U.S. 452, 463, 117 S.Ct. 905, 137 L.Ed.2d 79 (1997), requires the window of correction to be available for any deduction made for any reason other than lack of work.

Plaintiffs argue that application of the window of correction should be denied, because the deductions resulted from a policy that extended over four months.

Plaintiffs specifically refer to amicus curiae briefs filed in other circuits on behalf of the Secretary of Labor interpreting § 541.118(a)(6) as being unavailable where a policy or practice underlies the improper deductions.³

Plaintiffs also cross-appeal the denial of overtime compensation before the time of the deduction, limited by the two-year limitations period, and the denial of liquidated damages. We review a j.m.l. de novo. Casarez v. Burlington N./Santa Fe Co., 193 F.3d 334, 336 (5th Cir.1999).

III.

A.

Though the FLSA establishes a general rule that employers must pay their employees overtime compensation, executive, administrative, and professional employees are exempt. See 29 U.S.C. § 213(a)(1). The Secretary has broad authority to "define and delimit" the scope of these exemptions. Id.; see also Auer, 519 U.S. at 456, 117 S.Ct. 905. Among the requirements for the exemption is the salary-basis test, 29 C.F.R. § 541.118,⁴ under which the employee must receive "each pay period on a weekly, or less frequent basis, a predetermined amount constituting all or part of his compensation, which amount is not subject to reduction because of variations in the quality or quantity of the work performed." § 541.118(a).

In some circumstances, an employee may maintain his exempt status, notwithstanding improper deductions, under the window of correction established by § 541.118(a)(6), which reads:

The effect of making a deduction which is not permitted under these interpretations will depend upon the facts in the particular case. Where deductions are generally made when there is no work available, it indicates that there was no intention to pay the employee on a salary basis. In such a case the exemption would not be applicable to him during the entire period when such deductions were being made. On the other hand, where a deduction not permitted by these interpretations is inadvertent, or is made for reasons other than lack of work, the exemption will not be considered to have been lost if the employer reimburses the employee for such deductions and promises to comply in the future.

29 C.F.R. § 541.118(a)(6).

"The plain language of the regulation sets out `inadvertence' and `made for reasons other than lack of work' as alternative grounds permitting corrective action." Auer, 519 U.S. at 463, 117 S.Ct. 905. In Auer, the Court therefore allowed the defendant to correct an improper deduction resulting from a disciplinary suspension, even though it was intentional. Id.

The Court's interpretation of the window of correction in Auer informs our decision here. In Auer, however, the Court did not have the benefit of the interpretation of § 541.118(a)(6) proffered by the Secretary later in Klem and Whetsel, which, if adopted, would narrow the regulation from the Court's reading of broad applicability. Furthermore, Auer applied the window of correction to a single deduction, 519 U.S. at 463, 117 S.Ct. 905, and the Court had already determined that the plaintiff was not "subject to" deductions within the meaning of the salary-basis test, id. at 461-62, 117 S.Ct. 905. We therefore consider the applicability of the window of correction to the facts of this case in light of the Secretary's interpretation.

B.

Though we did not have a brief from the Secretary in this case, the Ninth Circuit summarized her position to be that

the window of correction is available only to employers that have demonstrated the "objective intention" to pay their employees on a salaried basis. When an employer has demonstrated such an objective intention, the window of correction is available to cure inadvertent or isolated violations of the "salary basis" regulations. However, when an employer has not demonstrated that intention, it cannot, after the fact, use the window of correction to bring itself into compliance with the "salary basis" regulations and thereby turn nonsalaried employees into salaried employees.

Further, under the Secretary's interpretation, an employer "that engages in a practice of making impermissible deductions in its employees' pay, or has a policy that effectively communicates to its employees that such deductions will be made, necessarily has no intention of paying its employees on a `salary basis.'" The question is not whether an employer has the subjective intention that its employees be exempt from the FLSA's overtime provisions. Rather, it is whether the employer has evinced the objective intention to pay its employees on a salaried basis as defined in the Secretary's regulations. When an employer has a practice and policy of noncompliance with those regulations, the Secretary reasons, it cannot demonstrate an intention to comply with the regulations and to pay its employees on a salaried basis. Under those circumstances, the employer cannot treat its employees as exempt; nor can it use the window of correction to comply retroactively with the regulations and thereby obtain an exemption for a class of employees that it actually never paid on a salaried basis.

Klem, 208 F.3d at 1091. Accord Whetsel, 246 F.3d at 900-01.

C.

Although we must give effect to an agency's regulation containing a reasonable interpretation of an ambiguous statute, Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 842-844, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984), such deference is not appropriate for an interpretation of a regulation found in an amicus curiae brief.⁵ In Auer, the Court addressed what weight should be afforded such interpretations of regulations. The Court considered an amicus curiae brief by the Secretary of Labor, filed at the request of the Court, that interpreted what it means to be "subject to" impermissible pay deductions under the salary-basis test created in § 541.118(a). Auer, 519 U.S. at 461, 117 S.Ct. 905.

The Secretary's interpretation required more than a theoretical possibility that exempt employees could incur deductions in pay; it required "either an actual practice of making such deductions or an...